HP's counteroffer of $27 a share came just hours after Dell raised its previous bid by a third, to $24.30. Shares of 3PAR, considered an attractive asset by both companies as they try to expand into new technologies like cloud computing, leapt 7 percent to $27.75 in after-hours trade.

The after-hours share price suggested some investors expect an even higher offer, though analysts deemed it unlikely that Dell would bid too much more since its last proposal of $24.30 was but a sliver above HP's first offer of $24.

HP, whose $115 billion of annual revenue compared with Dell's $53 billion, was widely seen from the start as having the upper hand.

Even though Dell has the balance sheet to step up the offer, they're probably reaching the upper limits of what they can offer, said Rodman & Renshaw analyst Ashok Kumar. At the end of the day, Hewlett-Packard is in a better position to close the deal.

Dell said its agreement with 3PAR allowed it to take some time to assess and match competing offers. 3PAR accepted Dell's $24.30-a-share offer, and the two companies agreed to raise their termination fee to $72 million from $53.5 million.

The pursuit of 3PAR comes as HP and Dell, as well as other large technology vendors from International Business Machines Corp to Cisco Systems Inc , are trying to expand into new business areas.

3PAR specializes in high-end data storage, a key part of cloud computing -- an increasingly popular technology that enables computer users to access data and software over the Internet, allowing companies to save costs.

The company competes with EMC Corp , NetApp Inc , IBM and other data storage companies, and 3PAR's expertise on the high end has made it particularly attractive.

A survey by Reuters of nine fund managers and analysts this week -- before Thursday's competing bids -- found that most expect a final price of about $29 per share.

HOT DEALS AND VALUATIONS

August has been an unusually active month for deals, following Intel Corp's $7.7 billion bid for security software maker McAfee Inc last week.

On Thursday alone, Cisco announced it would buy online video software company ExtendMedia, while HP said it would buy Stratavia, a software company dealing with cloud computing.

Many analysts say the bidding war has driven up valuations to unreasonable heights.

Analysts say at current bids, 3PAR is valued at around 8 times sales expected for the 2011 fiscal year. Multiples of above 5 are considered lofty in technology acquisitions.

3PAR has barely made a profit since its 1999 founding.

It's a very rich valuation, said Jeffrey Fidacaro at Susquehanna Financial Group. At what point does someone cry uncle? It's difficult because valuations don't seem to be making a whole lot of sense here. But then again, we don't know the revenue synergies they expect out of this.

Some say 3PAR may be worth more than traditional metrics suggest, since it could grow exponentially with the massive sales channels of either Dell or HP.

Analysts say HP, in that regard, may be a better fit for 3PAR because of its vast, global sales force. Expectations of faster returns may mean HP is willing to pay more.

Some said Dell needed 3PAR more than HP as it is only beginning to expand from computers into services and software.

HP is in a better position to ramp it up more quickly. They have the sales force in place to plug it in and win more deals, said Kevin Hunt, an analyst at Hapoalim Securities. Over time, though, I think it's more important for Dell.

Dell shares closed at $11.75, but dipped to $11.70 after HP's latest bid. HP shares closed at $38.22 and were little changed in late trade.

Bidding wars are rare in the tightly knit technology sector, where deals are often made behind closed doors.

In the last notable bidding war in the tech industry, EMC outbid NetApp last year to buy Data Domain for $2.4 billion. Data Domain was advised in that deal by Frank Quattrone, the same veteran technology banker who is advising 3PAR in the latest negotiations.